During a Treasury Select Committee hearing on Tuesday, four members of the Bank of England’s (BoE) Monetary Policy Committee (MPC) hinted that a key policy rate cut in December is unlikely, but a reduction in February remains on the table, according to Mitsubishi UFJ Financial Group (MUFG).
The meeting, which included Governor Andrew Bailey, new MPC member Alan Taylor, Deputy Governor Clare Lombardelli, and MPC member Catherine Mann, left the rates market largely unchanged as traders digested the updates against a backdrop of geopolitical concerns in Ukraine and political developments in the U.S.
Economic Uncertainty and Policy Response
Governor Bailey emphasized the economic uncertainties posed by the government’s decision to raise National Insurance Contributions (NICs) for employers. He noted that the added costs could either push inflation higher as businesses pass them on to consumers or lead to reductions in employment and working hours. The BoE plans to adopt a gradual approach to rate adjustments to monitor these impacts.
The hearing also touched on potential uncertainties stemming from incoming U.S. President Donald Trump’s trade policies. Bailey highlighted the need to assess tariff implementations, retaliatory measures, and currency impacts before drawing conclusions.
MPC Member Perspectives
Alan Taylor’s testimony suggested he leans dovish, favoring policy easing under weaker economic conditions. Clare Lombardelli appeared aligned with Bailey’s balanced stance, while Catherine Mann maintained her hawkish view, expressing skepticism about the restrictiveness of current policy and signaling resistance to rate cuts potentially through 2025.
Inflation and Wage Data Reinforce Caution
The latest wage data from Germany, showing an 8.8% annual surge in negotiated pay for Q3, alongside UK inflation figures, reinforced a cautious outlook. The UK’s consumer price index (CPI) rose from 1.7% to 2.3% in October year-over-year, exceeding expectations. Core CPI climbed to 3.3%, while services inflation ticked up to 5.0%. These figures bolster Mann’s argument for holding off on rate cuts in the near term.
In summary, while a December rate cut seems off the table, February remains a potential pivot point, with the BoE closely monitoring economic and geopolitical developments before adjusting its monetary policy.
